The basis for measuring the cost of capital derived from bonds and preferred stock,respectively,is the

Question

Quizplus · Accepted Answer

The cost of capital from bonds is measured using the after-tax rate of interest because interest expenses are tax-deductible, reducing the net cost to the company. For preferred stock, the cost is measured using the stated annual dividend rate because dividends are paid from after-tax income and are not deductible for tax purposes.

The Basis for Measuring the Cost of Capital Derived from Bonds